Friday, January 26, 2018

The Law of Demand Applies to Nutella

. . . Even in France! In Chapter Five of my book Foundations of Economics I explain that what economists call the Law of Demand is an implication of the Law of Marginal Utility. Because the marginal utility of a good decreases as the quantity we have increases, in order for people to demand a larger quantity, the price must be lower. I write, therefore that the Law of Demand tells us that "there is an inverse relationship between the hypothetical price of a good and the quantity of that good a person will buy."

A manifestation of this law played itself out earlier today in Intermarche stores throughout France. The BBC reports:

Intermarché supermarkets offered a 70% discount on Nutella, bringing the price down from €4.50 (£3.90) to €1.40. But police were called when people began fighting and pushing one another. "They are like animals. A woman had her hair pulled, an elderly lady took a box on her head, another had a bloody hand," one customer told French media. A member of staff at one Intermarché shop in central France told the regional newspaper Le Progrès: "We were trying to get in between the customers but they were pushing us."

Sometimes if the price falls significantly for something people really like, bedlam can ensue. This is what an increase in quantity demanded looks like: